SIGA Technologies(SIGA) - 2018 Q4 - Annual Report

PART I Item 1. Business SIGA Technologies, Inc. is a commercial-stage pharmaceutical company specializing in health security, with its lead product, oral TPOXX®, FDA approved for human smallpox, supported by BARDA contracts, and managed through third-party manufacturing, intellectual property, and regulatory compliance Overview - SIGA Technologies, Inc. is a commercial-stage pharmaceutical company specializing in health security, including biodefense countermeasures and therapies for emerging infectious diseases[22] - Oral TPOXX®, an antiviral drug for human smallpox, received FDA approval on July 13, 2018[23] - Priority Review Voucher (PRV) Sale: | Item | Value | | :--- | :--- | | Sale Date | October 31, 2018 | | Cash Consideration | $80.0 million | BARDA Contracts-TPOXX® - 2018 BARDA Contract (as of Feb 28, 2019): | Category | Value (approx.) | Details | | :--- | :--- | :--- | | Total Potential Payments | $600.1 million | Initially $628.7 million, modified to $600.1 million on Feb 21, 2019 | | Base Period Payments | $51.7 million | For oral TPOXX® delivery (35,700 courses), IV TPOXX® manufacture (20,000 courses), IV TPOXX® advanced development, supportive procurement | | Exercised Options Payments | $12.2 million | For post-marketing activities for oral TPOXX® | | Unexercised Options Payments | $536.2 million | For oral TPOXX® delivery (1,452,300 courses), IV TPOXX® manufacture (192,000 courses), IV TPOXX® post-marketing, supportive procurement | | Period of Performance | Up to 10 years (options) | Base period is 5 years | - 2011 BARDA Contract (as of Dec 31, 2018): | Category | Value (approx.) | Details | | :--- | :--- | :--- | | Total Base Contract Payments (including exercised options) | $508.7 million | | | Received for Oral TPOXX® Delivery | $459.8 million | For 1.7 million courses | | Received for Development & Supportive Activities | $43.9 million | | | Remaining Eligible for Reimbursement | $5.0 million | For development and supportive activities | | Remaining Unexercised Options | $72.7 million | Including $58.3M for PEP indication, $14.4M for warm-base manufacturing | | Expiration Date | September 2020 | | - The FDA Approval Replacement Obligation under the 2011 BARDA Contract was deemed remote following FDA approval of oral TPOXX® on July 13, 2018, as there was no difference between the approved product and delivered courses[33] Lead Product-TPOXX® - Oral TPOXX® is a novel, patented small-molecule drug for smallpox, approved by the FDA on July 13, 2018, with sales limited to the U.S. Strategic National Stockpile[36] - The IV formulation of TPOXX® completed a Phase I multiple ascending dose safety and pharmaceutical study in December 2018[37] Manufacturing - SIGA relies entirely on third-party Contract Manufacturing Organizations (CMOs) for TPOXX® manufacturing, adhering to cGMP standards[38] - Key CMOs for oral TPOXX® include Albemarle (API), Powdersize (micronization), Catalent (granulation/encapsulation), and PCI (packaging)[39][41][42][43] - Negotiations are ongoing with CMOs for the manufacture of IV TPOXX® and procurement of raw materials[44] Market for Biological Defense Programs - The biodefense market is influenced by global threats, with the U.S. government as the primary funding source for countermeasures[45] - U.S. Government Biodefense Funding (FY2019): | Source | Appropriation | Purpose | | :--- | :--- | :--- | | HHS | >$1.9 billion | Advanced development and procurement of medical countermeasures | - Potential additional markets for biodefense countermeasures include foreign governments, NGOs, multinational companies, healthcare providers, and state/local governments[54] - Oral TPOXX® is currently only approved for sale to the U.S. Strategic National Stockpile, requiring additional regulatory steps for broader U.S. sales[46] Research Agreements and Grants - The IV TPOXX® R&D program is funded by the 2018 BARDA Contract and a separate IV Formulation R&D Contract[47] - IV Formulation R&D Contract Details (as of Dec 31, 2018): | Item | Value/Date | | :--- | :--- | | Future Aggregate Funding | ~$15.1 million | | Termination Date | December 30, 2020 | - Contracts and grants are subject to BARDA's discretion for option exercise and the U.S. Government's right to terminate or restructure for convenience[48][49] Competition - The biotechnology and pharmaceutical industries are highly competitive, with rapidly evolving technology[50] - Competitors include major pharmaceutical companies, specialized biotechnology firms, academic institutions, and government agencies, many with greater financial, technical, and marketing resources[50] - TPOXX® faces significant competition for U.S. government funding for biodefense countermeasures[51] - Commercial opportunities could be reduced if competitors develop safer, more effective, or less expensive products, or if SIGA's products fail to meet governmental procurement requirements[52] Human Resources and Research Facilities - Human Resources (as of Feb 15, 2019): | Metric | Value | | :--- | :--- | | Full-time Employees | 41 | | Collective Bargaining Agreement | None | - Research and development facilities are leased in Corvallis, Oregon (10,276 sq ft), with a lease expiring in December 2019 and two renewal options[53] - Corporate headquarters are located in New York, NY[184] Intellectual Property and Proprietary Rights - SIGA's commercial success depends on obtaining and maintaining patent protection and preserving trade secrets for its proprietary technologies and products[55] - TPOXX® Patent Portfolio (as of Feb 28, 2019): | Category | Count | | :--- | :--- | | Patent Families | 7 | | U.S. Utility Patents | 21 | | Issued Foreign Patents | 57 | | U.S. Utility Patent Applications | 5 | | Foreign Patent Applications | 41 | - Expiration dates for pending patent applications, if granted, will fall between 2024 and 2037; Patent Term Extension Applications are pending for two key U.S. patents, potentially extending their expiration dates[64][66] - SIGA also holds proprietary trademark rights in SIGA® and TPOXX® in the U.S. and certain foreign countries[67] Government Regulation - Biopharmaceutical products require rigorous regulatory approval, including pre-clinical and multi-phase clinical testing (Phase I, II, III) by the FDA and foreign health authorities[68][69][70][71] - TPOXX® approval was determined under the "Animal Rule," which permits effectiveness evidence from animal studies for certain biodefense products[73] - The Emergency Use Authorization (EUA) allows for the use of medical countermeasures in emergencies without full FDA approval under specific conditions[74] - Project BioShield facilitates biodefense-related procurement and research grants, allowing for the purchase of unapproved countermeasures for the Strategic Stockpile under certain conditions[76][77] - The Public Readiness and Emergency Preparedness Act (PREP Act) provides immunity from liability for manufacturers of "covered countermeasures" like TPOXX® in public health emergencies[79][121] - International operations are subject to varying foreign regulations, including biodefense-specific procedures similar to the "Animal Rule"[80] - Government contracts impose strict compliance with procurement regulations, potentially leading to penalties, termination, or modification for convenience[81][96][97] Availability of Reports and Other Information - SIGA files annual, quarterly, and current reports with the SEC, accessible on **www.sec.gov**[82](index=82&type=chunk)[83] - Company filings and corporate governance documents are also available on SIGA's investor relations website, **www.siga.com**[84](index=84&type=chunk)[85] Item 1A. Risk Factors This section outlines various risks that could materially affect SIGA's business, financial condition, and operating results, including dependence on government contracts, regulatory challenges, intense competition, reliance on third-party manufacturers, and financial and intellectual property concerns Risks Related to Our Dependence on U.S. Government Contracts - Over 80% of the 2018 BARDA Contract's value is tied to options, which BARDA may choose not to exercise, posing a significant risk to future revenue[90] - Government contracts are subject to Congressional appropriations and political considerations, leading to funding uncertainties[88] - Fixed-price government contracts carry the risk of reduced profitability or losses if actual costs exceed estimates[91] Risks Related to Sales of Biodefense Products to the U.S. Government - Future operating revenues are expected to primarily come from BARDA contracts for TPOXX® stockpiling, making continued contract awards crucial for long-term business[92] - Non-compliance with government procurement laws and regulations can result in severe penalties, including contract termination, forfeiture of profits, fines, and debarment from future government business[95][104] - Government contracts often include provisions allowing unilateral termination or modification for convenience, and the government may claim rights to intellectual property developed under the contract[97][99] - Changing political/social factors, opposition, and government shutdowns can delay or impair the ability to market biodefense products and negatively impact liquidity[100][102] Risks Related to Regulatory Approvals - Failure to obtain FDA or other regulatory approvals for additional TPOXX® indications or formulations (e.g., IV TPOXX®) could limit commercialization to BARDA sales and materially impair revenue[108] - Obtaining foreign regulatory approvals is a separate, complex, and potentially lengthy process, and FDA approval does not guarantee foreign approval[109][110] Risks Related to Commercial Activities - Expanding sales of TPOXX® to non-U.S. government customers is a key business strategy, but this market is undeveloped and requires meeting additional regulatory requirements[113][114] - Identification of side effects or manufacturing problems post-market could lead to regulatory approval withdrawal, reformulation, additional trials, sales drops, and reputational damage[118] - The biopharmaceutical market is highly competitive, with many competitors possessing greater financial, technical, and marketing resources[119] - Product liability lawsuits, despite PREP Act immunity and government indemnification, could result in substantial liabilities, decreased demand, and harm to reputation and financial resources[120][121][122][123] - Healthcare reform and controls on spending could limit pricing and sales of products to non-government customers[124] - International operations are subject to various laws, including the FCPA, which can impose costly compliance programs and substantial penalties for violations[125][126][127][129] Risks Related to Product Development - Growth is significantly impacted by the success of developing and commercializing new drug candidates or additional TPOXX® indications, a process that is expensive, lengthy, and uncertain[132] - Reliance on the "Animal Rule" for biodefense drug candidates means animal efficacy study results may not be predictive of human efficacy[133] - Clinical trials and animal studies are prone to unforeseen events, delays, and potential failures at any stage, which could prevent regulatory approval or commercialization[134][135] - There is no guarantee that the IV formulation of TPOXX® or other drug candidates will be approved or commercially viable[137][138] Risks Related to Our Dependence on Third Parties - SIGA relies on third-party manufacturers and service providers for raw materials, TPOXX® manufacturing, and inventory storage[141][142] - Failure of third parties to comply with regulations, meet deadlines, or perform contractual duties could significantly impair SIGA's ability to meet BARDA contract obligations and delay product development[143][144] Risks Related to Manufacturing and Manufacturing Facilities - Large-scale commercial manufacturing of TPOXX® is complex and requires strict cGMP compliance, with deviations potentially leading to lot failures, delays, recalls, or increased costs[145] - Reliance on third-party manufacturers means SIGA does not control their production processes, and their non-compliance could delay or impair drug supplies[146][149] - Activities involving hazardous and radioactive materials in biopharmaceutical R&D expose the company to environmental regulatory liabilities, with potential for damages exceeding resources[150] Risks Related to Our Business - Future net losses are possible if BARDA does not exercise options under the 2018 BARDA Contract, potentially impacting cash flows and operations[152] - Acquisitions and strategic investments are difficult to identify and integrate, can divert management, disrupt business, dilute stockholder value, and adversely affect operating results[153] - Computer system failures, cyber-attacks, or cybersecurity deficiencies could disrupt operations, lead to data loss, legal claims, and reputational damage[154] - The loss of key personnel or difficulty in recruiting and retaining qualified employees could adversely affect operations and research, development, and commercial objectives[155][156] - Managing future growth may place significant strain on management and operational systems[157] Risks Related to Our Intellectual Property - Inadequate protection of intellectual property rights (patents, trade secrets, trademarks) could decrease SIGA's ability to compete and harm commercial success[159][160][162] - Challenges to patent validity or enforceability could harm product value and lead to earlier competition[164] - Allegations of infringement by third parties could lead to lawsuits, damages, or the need to license rights on unfavorable terms, with litigation being costly and time-consuming[163][165][166] Risks Related to Our Financial Position and Need for Additional Financing - SIGA may need additional funding, which might not be available, potentially forcing delays or elimination of product development programs or commercial efforts[168][169] - Obtaining additional financing through equity or convertible debt sales may result in dilutive or unfavorable terms, while debt financing could impose restrictive covenants[170] - The $80.0 million Term Loan imposes periodic interest payments and covenants (e.g., minimum cash balance, regulatory milestones) that restrict business activities[171][172][173] - Default on the Term Loan would have a material adverse effect, potentially leading to acceleration of outstanding obligations and foreclosure on assets, as the loan is secured by a first priority lien on substantially all company assets[174] Risks Related to Our Common Stock - SIGA's stock price is volatile due to factors like clinical trial results, regulatory approvals, competitor announcements, economic conditions, and analyst estimates[176][177] - Inaccurate or unfavorable research by securities or industry analysts could lead to a decline in the common stock price[180] - Future issuance of preferred stock could adversely affect the rights of common stockholders and potentially delay or prevent a change of control[181] - Concentration of ownership by directors, executive officers, and principal stockholders (approximately 33% of outstanding common stock) could influence corporate actions and delay or prevent a change of control[182] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments from the SEC regarding the company's filings - No unresolved staff comments were reported[183] Item 2. Properties SIGA maintains its corporate headquarters in New York, NY, under a new 10-year lease, and its research and development facilities in Corvallis, Oregon, under a lease expiring in December 2019 with renewal options - Corporate headquarters are located in New York, NY, under a new 10-year lease for 3,200 square feet, commenced in May 2017[184] - Research and development facilities are in Corvallis, Oregon, leasing 10,276 square feet, with a lease expiring in December 2019 and two renewal options[185] Item 3. Legal Proceedings SIGA fully satisfied a $217.0 million judgment, including post-judgment interest, related to litigation with PharmAthene by November 16, 2016, as part of its bankruptcy plan. The company anticipates that other routine legal claims will not materially impact its financial position - Litigation with PharmAthene resulted in a $195.0 million judgment (including pre-judgment interest) affirmed in December 2015[408] - PharmAthene Litigation Settlement: | Item | Amount | | :--- | :--- | | Total Payment to Satisfy Judgment (including post-judgment interest) | $217.0 million | - The company believes that other routine claims, suits, investigations, and proceedings will not have a material adverse effect on its business or financial position[186][409] Item 4. Mine Safety Disclosures This item indicates that no disclosures are required regarding mine safety - No disclosure is required for mine safety[187] PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides details on the trading history and price performance of SIGA's common stock, including its transition to The Nasdaq Global Market. It also presents a performance graph comparing SIGA's stock return against market indices and notes the company's dividend policy and information regarding equity compensation plans Price Range of Common Stock - SIGA's common stock commenced trading on The Nasdaq Global Market under "SIGA" on March 22, 2018[190] - Common Stock Price Range (High/Low): | Period | High | Low | | :--- | :--- | :--- | | 2018 | | | | First Quarter | $6.78 | $4.21 | | Second Quarter | $7.54 | $5.72 | | Third Quarter | $8.47 | $5.77 | | Fourth Quarter | $7.94 | $4.68 | | 2017 | | | | First Quarter | $3.40 | $2.80 | | Second Quarter | $3.88 | $3.00 | | Third Quarter | $3.39 | $2.85 | | Fourth Quarter | $5.24 | $3.14 | - Common Stock Information (as of Feb 15, 2019): | Metric | Value | | :--- | :--- | | Closing Sale Price | $6.99 per share | | Holders of Record | 35 | | Shares Outstanding | 80,941,524 | - The company has not paid and does not expect to pay cash dividends, intending to retain future cash flow for business growth and debt service, as dividend payments are not permitted under the Loan Agreement[191] Performance Graph - Cumulative Total Stockholder Return ($100 invested on Dec 31, 2013): | Index | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SIGA Technologies, Inc. | $100 | $44 | $13 | $88 | $148 | $242 | | NASDAQ Composite Index | $100 | $113 | $120 | $129 | $165 | $159 | | NASDAQ Biotech Composite Index | $100 | $134 | $149 | $117 | $142 | $128 | Securities Authorized for Issuance Under Equity Compensation Plans - Information on securities authorized for issuance under equity compensation plans is incorporated by reference from Item 12[195] Item 6. Selected Financial Data This section provides a summary of SIGA's selected consolidated financial data for the past five fiscal years, including key income statement and balance sheet metrics, offering a quick overview of the company's financial performance and position - Selected Consolidated Financial Data (in thousands, except share and per share data): | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $477,054 | $12,269 | $14,988 | $8,176 | $3,140 | | Cost of sales and supportive services | $95,269 | $— | $— | $— | $— | | Selling, general and administrative | $12,880 | $12,303 | $13,714 | $10,582 | $12,647 | | Research and development | $13,016 | $16,680 | $19,711 | $13,131 | $10,707 | | Patent expenses | $789 | $910 | $909 | $1,009 | $988 | | Litigation expense | $— | $— | $— | $14,407 | $188,465 | | Lease termination | $— | $1,225 | $— | $— | $— | | Interest on PharmAthene liability | $— | $— | $11,669 | $— | $— | | Income (loss) from operations | $355,100 | $(18,849) | $(31,015) | $(30,953) | $(209,667) | | (Increase) decrease in fair value of common stock warrants | $(6,923) | $(4,739) | $(895) | $— | $313 | | Interest expense, net | $(15,478) | $(14,758) | $(2,396) | $(267) | $(456) | | Backstop fee | $— | $— | $(1,764) | $— | $— | | Other income, net | $78,941 | $17 | $102 | $42 | $1 | | Reorganization items, net | $— | $— | $(3,717) | $(7,811) | $(2,127) | | Income (loss) before income taxes | $411,640 | $(38,329) | $(39,685) | $(38,989) | $(211,936) | | Benefit from (provision for) income taxes | $10,168 | $2,094 | $(14) | $(462) | $(53,528) | | Net income (loss) | $421,808 | $(36,235) | $(39,699) | $(39,451) | $(265,464) | | Basic earnings (loss) per common share | $5.28 | $(0.46) | $(0.69) | $(0.73) | $(4.97) | | Diluted earnings (loss) per common share | $5.18 | $(0.46) | $(0.69) | $(0.73) | $(4.97) | | Weighted average common shares outstanding: basic | 79,923,295 | 78,874,494 | 57,188,503 | 53,777,687 | 53,419,686 | | Weighted average common shares outstanding: diluted | 82,708,472 | 78,874,494 | 57,188,503 | 53,777,687 | 53,419,686 | | Cash and cash equivalents and restricted cash | $180,397 | $37,102 | $56,174 | $112,711 | $99,714 | | Total assets | $203,444 | $144,670 | $160,982 | $185,733 | $160,729 | | Long-term obligations | $76,811 | $71,891 | $66,801 | $332 | $405 | | Stockholders' equity (deficiency) | $102,915 | $(323,138) | $(287,418) | $(284,429) | $(246,502) | | Net cash provided by (used in) operating activities | $68,871 | $(18,387) | $(116,813) | $11,109 | $14,177 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on SIGA's financial condition and results of operations, highlighting the significant turnaround in 2018 driven by FDA approval of oral TPOXX® and related BARDA contract revenues. It details the company's liquidity, critical accounting estimates, and a comprehensive analysis of revenues, expenses, and cash flows for the past three years, along with contractual obligations and market risk disclosures Overview - SIGA is a commercial-stage pharmaceutical company focused on the health security market, with oral TPOXX® as its lead product for smallpox treatment[199] - Oral TPOXX® received FDA approval on July 13, 2018, and the company sold its Priority Review Voucher for $80.0 million on October 31, 2018[200] Lead Product-TPOXX® - 2018 BARDA Contract Summary (as of Feb 28, 2019): | Category | Value (approx.) | Details | | :--- | :--- | :--- | | Total Potential Payments | $600.1 million | Includes base, exercised, and unexercised options | | Base Period Payments | $51.7 million | For oral TPOXX® delivery (35,700 courses), IV TPOXX® manufacture (20,000 courses), IV TPOXX® advanced development, supportive procurement | | Exercised Options Payments | $12.2 million | For post-marketing activities for oral TPOXX® | | Unexercised Options Payments | $536.2 million | For oral TPOXX® delivery (1,452,300 courses), IV TPOXX® manufacture (192,000 courses), IV TPOXX® post-marketing, supportive procurement | - 2011 BARDA Contract Summary (as of Dec 31, 2018): | Category | Value (approx.) | Details | | :--- | :--- | :--- | | Total Base Contract Payments (including exercised options) | $508.7 million | For 1.7 million courses of oral TPOXX® and development activities | | Received for Oral TPOXX® Delivery | $459.8 million | | | Received for Development & Supportive Activities | $43.9 million | | | Remaining Eligible for Reimbursement | $5.0 million | | | Remaining Unexercised Options | $72.7 million | For PEP indication and warm-base manufacturing | | Expiration Date | September 2020 | | - FDA approval of oral TPOXX® on July 13, 2018, eliminated the FDA Approval Replacement Obligation and triggered a $50.0 million payment for 84-month expiry[209][210] Liquidity - Management believes the company will continue as a going concern due to significant cash inflows in 2018[212][213][294] - Key Cash Inflows (July-Oct 2018): | Source | Amount | | :--- | :--- | | 2011 BARDA Contract Holdback Payment | $41 million | | 2011 BARDA Contract 84-month Expiry Option | $50 million | | Priority Review Voucher (PRV) Sale | $80 million | - The 2018 BARDA Contract could provide up to $600 million in payments over the next several years[213][294] Critical Accounting Estimates - Critical accounting estimates include revenue recognition, valuation of warrants, and income taxes (including realization of deferred tax assets)[214][296] - Revenue recognition under ASC 606 involves allocating transaction prices to performance obligations, recognized over time (e.g., R&D using cost-to-cost method) or at a point in time (e.g., product delivery upon customer acceptance and resolution of consideration constraints)[215][216][217][313][314] - Following FDA approval of oral TPOXX® in July 2018, the constraint on consideration for the 2011 BARDA Contract was resolved, leading to recognition of deferred revenue[217][314][322] - In 2018, sufficient positive evidence (FDA approval, new BARDA contract) led to the conclusion that substantially all deferred tax assets are realizable, resulting in a reduction of the related valuation allowance[224][401] - Fair value of liability-classified warrants is estimated using model-derived valuations, with changes reported in earnings[227][307] Recently Issued Accounting Pronouncements - Adopted ASU No. 2016-18 (Restricted Cash) on January 1, 2018, impacting cash flow disclosures[299] - Expects to adopt ASU No. 2016-02 (Leases) on January 1, 2019, which will result in recording $3.0-$4.0 million in right-of-use assets and lease liabilities[337] - ASU No. 2017-04 (Goodwill Impairment) will be effective for fiscal years beginning after December 15, 2019, with no significant impact expected[336] Results of Operations for the Years ended December 31, 2018, 2017, and 2016 - Key Financial Highlights (in millions): | Metric | 2018 | 2017 | 2016 | Change 2018 vs 2017 | Change 2017 vs 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $477.1 | $12.3 | $15.0 | +$464.8M | -$2.7M | | Product Sales & Supportive Services | $468.9 | $0 | $0 | +$468.9M | $0 | | R&D Contracts & Grants | $8.1 | $12.3 | $15.0 | -$4.2M | -$2.7M | | Cost of Sales & Supportive Services | $95.3 | $0 | $0 | +$95.3M | $0 | | SG&A Expenses | $12.9 | $12.3 | $13.7 | +$0.6M | -$1.4M | | R&D Expenses | $13.0 | $16.7 | $19.7 | -$3.7M | -$3.0M | | Operating Income (Loss) | $355.1 | $(18.8) | $(31.0) | +$373.9M | +$12.2M | | Net Income (Loss) | $421.8 | $(36.2) | $(39.7) | +$458.0M | +$3.5M | | Basic EPS | $5.28 | $(0.46) | $(0.69) | +$5.74 | +$0.23 | | Diluted EPS | $5.18 | $(0.46) | $(0.69) | +$5.64 | +$0.23 | - The significant increase in 2018 revenues and net income was primarily due to the recognition of $375.6 million in deferred revenue and $91 million in payments from the 2011 BARDA Contract following FDA approval of oral TPOXX®[230] - Other income in 2018 was $78.9 million, primarily reflecting the $80.0 million sale of the Priority Review Voucher[244] - The effective tax rate for 2018 was (2.5%), differing from the statutory rate primarily due to the reversal of the valuation allowance on deferred tax assets, recognizing a $25.8 million benefit[246][403] Liquidity and Capital Resources - Cash and Restricted Cash (in millions): | Metric | Dec 31, 2018 | Dec 31, 2017 | Change | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $100.7 | $19.9 | +$80.8 | | Restricted Cash | $79.7 | $17.2 | +$62.5 | | Total Cash & Restricted Cash | $180.4 | $37.1 | +$143.3 | - Net Cash Flow by Activity (in millions): | Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Operating Activities | $68.9 | $(18.4) | $(116.8) | | Investing Activities | $78.2 | $(0.1) | $1.2 | | Financing Activities | $(3.8) | $(0.6) | $59.1 | - Operating cash flow in 2018 was primarily driven by a $41.0 million holdback payment and a $50.0 million option exercise payment under the 2011 BARDA Contract[255] - Investing cash flow in 2018 was primarily from $78.3 million net proceeds from the sale of the Priority Review Voucher[259] - Financing cash flow in 2016 included $34.6 million from a rights offering and $46.9 million from the Term Loan (paid directly to PharmAthene)[262] Contractual Obligations, Commercial Commitments and Purchase Obligations - Contractual Obligations (as of Dec 31, 2018, in thousands): | Obligation Type | Total | Less than 1 year | 1 to 3 years | 3 to 5 years | Greater than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $3,019,928 | $541,376 | $608,000 | $672,774 | $1,197,778 | | Term loan obligations at maturity | $84,000,000 | $— | $84,000,000 | $— | $— | | Interest payment obligations on Term Loan | $21,523,631 | $11,452,078 | $10,071,553 | $— | $— | | Purchase obligations | $7,224,223 | $6,679,261 | $488,530 | $56,432 | $— | | Payments under Lease Termination Agreement | $568,057 | $336,955 | $231,102 | $— | $— | | Total contractual obligations | $116,335,839 | $19,009,670 | $95,399,185 | $729,206 | $1,197,778 | Off-Balance Sheet Arrangements - SIGA does not have any off-balance sheet arrangements[265] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section discusses SIGA's exposure to market risks, primarily related to its cash and cash equivalents investment portfolio and the Term Loan. The company aims for capital preservation and does not use derivatives. However, it faces interest rate sensitivity, particularly from rising LIBOR rates affecting its Term Loan, and stock price fluctuations impacting its liability-classified warrant - SIGA's investment portfolio consists of cash and cash equivalents, with a conservative investment policy focused on capital preservation[266] - The company does not use derivative financial instruments to manage exposure to interest rate changes[266] - SIGA is subject to the risk of rising LIBOR rates, where every 0.5% increase in the minimum LIBOR rate could increase annual interest payments on the Term Loan by approximately $0.4 million[266] - Stock price fluctuations affect the liability-classified warrant; every $1 increase in SIGA's stock price increases the intrinsic value of the warrant by approximately $1.7 million[266] Item 8. Financial Statements and Supplementary Data This section presents SIGA's audited consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows for the periods ended December 31, 2018, 2017, and 2016. It also includes the independent auditor's report and detailed notes to the financial statements, covering significant accounting policies, BARDA contracts, debt, equity, income taxes, and other financial disclosures Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP provided an unqualified opinion on SIGA's consolidated financial statements for 2018 and 2017, and for the three years ended December 31, 2018[272][273] - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[273] - The report highlights changes in accounting principles for revenue recognition and the classification/presentation of restricted cash in 2018[274] Consolidated Balance Sheets - Consolidated Balance Sheet Highlights (in thousands): | Metric | Dec 31, 2018 | Dec 31, 2017 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $100,652,809 | $19,857,833 | +$80,794,976 | | Restricted cash, short-term | $11,452,078 | $10,701,305 | +$750,773 | | Restricted cash, long-term | $68,292,023 | $6,542,448 | +$61,749,575 | | Total current assets | $121,289,845 | $37,364,493 | +$83,925,352 | | Deferred costs | $— | $96,592,334 | -$96,592,334 | | Deferred tax asset, net | $11,733,385 | $2,431,963 | +$9,301,422 | | Total assets | $203,443,741 | $144,670,379 | +$58,773,362 | | Total current liabilities | $11,337,405 | $6,810,446 | +$4,526,959 | | Deferred revenue | $— | $377,641,485 | -$377,641,485 | | Long-term debt | $75,547,597 | $71,050,324 | +$4,497,273 | | Total liabilities | $100,529,054 | $467,808,670 | -$367,279,616 | | Total stockholders' equity (deficiency) | $102,914,687 | $(323,138,291) | +$426,052,978 | Consolidated Statements of Operations and Comprehensive Income (Loss) - Consolidated Statements of Operations Highlights (in thousands): | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total revenues | $477,053,782 | $12,268,960 | $14,987,628 | | Product sales and supportive services | $468,918,468 | $— | $— | | Research and development revenue | $8,135,314 | $12,268,960 | $14,987,628 | | Cost of sales and supportive services | $95,268,974 | $— | $— | | Selling, general and administrative | $12,879,738 | $12,303,050 | $13,713,635 | | Research and development expenses | $13,016,183 | $16,679,712 | $19,710,673 | | Operating income (loss) | $355,099,398 | $(18,849,169) | $(31,014,956) | | Net and comprehensive income (loss) | $421,807,828 | $(36,235,484) | $(39,697,960) | | Basic earnings (loss) per share | $5.28 | $(0.46) | $(0.69) | | Diluted earnings (loss) per share | $5.18 | $(0.46) | $(0.69) | Consolidated Statements of Changes in Stockholders' Equity/(Deficiency) - Consolidated Statements of Changes in Stockholders' Equity/(Deficiency) Highlights (in thousands): | Metric | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity/(Deficiency) | $102,914,687 | $(323,138,291) | $(287,418,269) | | Net income (loss) | $421,807,828 | $(36,235,484) | $(39,697,960) | | Additional paid-in capital | $218,697,872 | $214,229,581 | $213,714,154 | | Accumulated deficit | $(115,791,261) | $(537,375,776) | $(501,140,292) | - The significant increase in stockholders' equity in 2018 was primarily due to the net income of $421.8 million and increases in additional paid-in capital from stock option/warrant exercises and stock-based compensation[288] Consolidated Statements of Cash Flows - Consolidated Statements of Cash Flows Highlights (in thousands): | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net income (loss) | $421,807,828 | $(36,235,484) | $(39,697,960) | | Net cash provided by (used in) operating activities | $68,871,323 | $(18,386,767) | $(116,813,003) | | Net cash provided by (used in) investing activities | $78,236,562 | $(100,124) | $1,188,664 | | Net cash (used in) provided by financing activities | $(3,812,561) | $(585,569) | $59,087,357 | | Net increase (decrease) in cash and cash equivalents | $143,295,324 | $(19,072,460) | $(56,536,982) | | Cash, cash equivalents and restricted cash at end of period | $180,396,910 | $37,101,586 | $56,174,046 | - Operating cash flow in 2018 was primarily driven by a $41.0 million holdback payment and a $50.0 million option exercise payment under the 2011 BARDA Contract[255] - Investing cash flow in 2018 was primarily from $78.3 million net proceeds from the sale of the Priority Review Voucher[259] - Financing cash flow in 2016 included $34.6 million from a rights offering and $46.9 million from the Term Loan (paid directly to PharmAthene)[262] Notes to Consolidated Financial Statements - The notes detail the company's business as a commercial-stage pharmaceutical company focused on health security, with oral TPOXX® as its lead product[293] - Significant accounting policy changes in 2018 include the adoption of ASC 606 for revenue recognition and ASU 2016-18 for restricted cash[274][299][309] - The 2018 BARDA Contract has a potential value of $600.1 million, while the 2011 BARDA Contract involved $508.7 million in payments and expired in September 2020[338][345][349] - Following FDA approval of oral TPOXX® in Q3 2018, $375.6 million of deferred revenue and $96.5 million of deferred costs under the 2011 BARDA Contract were recognized[350][353] - The company's $80.0 million Term Loan matures in November 2020, with an effective interest rate of 19.4% as of December 31, 2018, and is secured by substantially all company assets[358][360][362] - In 2018, the company reversed substantially all of its $101.5 million valuation allowance against deferred tax assets due to FDA approval and new contracts, recognizing a $25.8 million tax benefit[246][401] - The PharmAthene litigation resulted in a $217.0 million payment by November 2016, fully satisfying the judgment[408] - Related party transactions include a new 10-year lease for corporate headquarters with M&F Incorporated (a principal stockholder) and a consulting agreement with a board member[414][412] - The company emerged from Chapter 11 bankruptcy on April 12, 2016, fully paying all claims, including the PharmAthene judgment[423] - Quarterly Financial Information (2018, in thousands): | Metric | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,748 | $2,661 | $471,075 | $1,569 | | Cost of sales and supportive services | $— | $— | $95,166 | $103 | | Operating income (loss) | $(4,535) | $(3,710) | $368,885 | $(5,541) | | Net income (loss) | $(11,582) | $(7,051) | $388,050 | $52,391 | | Basic EPS | $(0.15) | $(0.09) | $4.85 | $0.65 | | Diluted EPS | $(0.15) | $(0.09) | $4.71 | $0.65 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section confirms that there have been no changes in or disagreements with the company's independent accountants regarding accounting or financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure were reported[428] Item 9A. Controls and Procedures Management, with the involvement of the CEO and CFO, concluded that SIGA's disclosure controls and procedures were effective as of December 31, 2018. Furthermore, there were no material changes in internal control over financial reporting during the fourth quarter of 2018, and the effectiveness of internal controls was independently audited and confirmed - Management concluded that disclosure controls and procedures were effective as of December 31, 2018[430] - No material changes in internal control over financial reporting occurred during Q4 2018[431] - PricewaterhouseCoopers LLP audited and confirmed the effectiveness of internal control over financial reporting as of December 31, 2018[435] Item 9B. Other Information This item indicates that no other information is required to be reported - No other information was reported in this item[436] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, and corporate governance practices is incorporated by reference from its definitive proxy statement for the 2019 Annual Meeting of Stockholders - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement[438] Item 11. Executive Compensation Details concerning executive compensation are incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders - Information on Executive Compensation is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement[439] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, along with related stockholder matters, is incorporated by reference from the 2019 proxy statement. As of December 31, 2018, the company had 924,674 securities to be issued under equity compensation plans, with 4,862,804 available for future issuance - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement[440][443] - Equity Compensation Plan Information (as of Dec 31, 2018): | Category | Number of Securities to be Issued | Weighted-average Exercise Price | Number of Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 924,674 | $5.78 | 4,862,804 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 924,674 | $5.78 | 4,862,804 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement[443] Item 14. Principal Accounting Fees and Services Information pertaining to principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders - Information on Principal Accounting Fees and Services is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement[444] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules that are part of the 10-K report, including various contracts, amendments, agreements, and certifications, providing comprehensive supporting documentation for the filing - The section provides a comprehensive list of exhibits and financial statement schedules, including key contracts like the BARDA agreements, loan agreements, and employment agreements[446][447][448][449][450][451][452] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided in this report - No Form 10-K Summary is provided in this report[453] SIGNATURES This section contains the required signatures of the company's Chief Executive Officer, Chief Financial Officer, and members of the Board of Directors, certifying the submission of the report on March 5, 2019 - The report was signed by the Chief Executive Officer, Chief Financial Officer, and Board of Directors on March 5, 2019[455][456]